1. Private Equity & Venture Capital
So if we continue our discussion on the sources of equity and focusing
on private equity firms, we can understand that they manage funds or pools
of capital that invest in companies where they see an opportunity for a
high rate of return. Now, keep in mind that these funds invest only
for limited time periods. They're always trying to look for exit strategies,
which could include an IPO, which is an initial public offering,
or they could sell to another private equity firm.
The private equity funds typically are split into two categories.
Now, these two categories include venture capital funds and LBO funds.
Now, the venture capital funds would typically invest in early stage businesses
or expanding businesses that have limited access to other forms of financing.
Examples of venture capital funds would be Sequoia Capital, Y Combinator
or Andreessen Horowitz. And now, LBO funds would typically invest in more
mature businesses. They usually take a controlling interest and they will
leverage the equity investment with a substantial amount of external debt.
The bio funds tend to be significantly larger than the venture capital funds.
And here examples of LBO funds would be Blackstone, KKR or the Carlyle
Group.
2. Let's practice!